July 10, 2013 / 8:12 PM / 4 years ago

Small California city seeks financial salvation in tax hike

LOS ANGELES, July 10 (Reuters) - For the small California city of Adelanto, bankruptcy is not just some distant concern. It has witnessed the plight of its much larger neighbor, San Bernardino, and it is working hard to avoid following it down a similar path.

Officials of Adelanto say the city of 32,000, which sits in southern California's Mojave Desert, has run out of money and that there is one simple solution: a tax hike.

To that end, the city council voted unanimously last month to declare a fiscal emergency, a necessary step under state law in order to place a revenue-increasing measure on a public ballot.

If voters do not pass the measure, the city's coffers will be empty by next summer and bankruptcy will loom, officials say.

"We've exhausted every effort to bring in revenue," Mayor Cari Thomas said. "Unfortunately, the cash we need to pay our bills is running very low."

Like the rest of San Bernardino County in the arid land that sits about 60 miles east of Los Angeles, Adelanto has been hard hit by the housing crisis. By 2010, Adelanto had seen 1,700 homes - out of a total of 8,000 - enter into foreclosure.

San Bernardino, the county's largest city with a population of 240,000, filed for bankruptcy last August and is waiting for a judge to rule if it is eligible for Chapter 9 protection. It is not alone in California. San Bernardino's filing came just shortly after the northern California city of Stockton sought bankruptcy protection.

Adelanto thinks there is a better way to go.

Jim Hart, Adelanto's city manager, said officials are about to launch a huge outreach and publicity effort to convince voters to back a tax increase initiative on a ballot next June. Without a "yes" vote, Hart said, bankruptcy might be the only option left to the city.

Unlike many other parts of the United States where house prices are increasing and the economic recovery is taking hold, Adelanto - together with much of inland, southern California - remains in desperate straits, five years after the financial collapse.

Thomas said house prices are mired in the doldrums. The city collects only $4.5 million in property tax revenue a year, just enough to cover its bill from San Bernardino County for police services. The county fire department charged Adelanto $3.1 million this fiscal year.

Together, police and fire account for two thirds of Adelanto's $12 million budget.

Thomas and Hart told Reuters that they are now looking for a utility users tax to be placed on a June 2014 ballot. It would cost taxpayers an extra $25 to $30 a month, and bring in $2.5 million a year, which Hart hopes will be enough to plug the budget gap.

Another nearby city, Grand Terrace, is also pushing for a utility tax hike, of $1.5 million, for the upcoming November ballot to avoid insolvency.

Adelanto has already slashed expenditures. Since 2007 it has cut its workforce from 110 to 56. In 2009 it sold its correctional facility for $23 million, but most of that cash is now gone. Hart and Thomas say the city has no bond debt.

"We are going to make a 100 percent effort in making people realize that they need to support this ballot measure," Hart said.

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